UK and International Tax news

Company Residence

Friday 16th July 2010

HMRC have recently issued new draft guidance on the situations in which HMRC will not usually review a companys residence status.

To date, case law has stated that a company is resident where its real business is carried on, where it really keeps house and does business and that is where the central management and control of its business actually abides. Generally, the board of directors will meet where the company is resident and the location of those meetings is usually an important factor in the determination of the place where the real business is carried on, but there is no rule of law that equates the two.

The necessity of establishing a common standard for the treatment of different companies has meant that the Courts have been bound to arrive at a general principle to form an acceptable test of residence. As was noted in the Unit Construction case such a rule might have taken a variety of forms including the country of incorporation, the location of general meetings, the site of meetings of the directors’ board were all possible candidates for selection as the criterion. The principle was adopted that a company is resident where its central control and management abide, but there is no assumption that central management and control must be found where the directors meet.

A residence rule based on the location of board meetings would not be without difficulties. Where would the central management and control be if

the board is not meeting, or

the board does not habitually meet in any one country, or

its meetings are composed of members participating from different countries, or

the board exercises its powers to manage and control in a formal sense only, merely executing either instructions from another person or body or decisions made prior to the meeting

The cases also show that central management and control may be divided between two or more locations, but the courts have yet to set out a general rule applicable to such situations and until they do there will be uncertainty for companies and for HMRC.

HMRC have set out in their International Manual some examples of the situations in which they will not usually seek to demonstrate that a company is resident in the UK.

If you would like discuss company residence in more detail, please contact Keith Rushen on +44 (0)20 7486 2378